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It's official: US in recession since March

By SHIHOKO GOTO, Senior Business Correspondent

WASHINGTON, Nov. 26 (UPI) -- The U.S. economic engine started sputtering long before the Sept. 11 terrorist attacks, the nation's official arbiter of prosperity booms and busts announced Monday.

While it comes as no surprise that the National Bureau of Economic Research declared the U.S. economy is currently in recession, the research group made clear that a substantial decline in industrial output and employment were in the works prior to Sept. 11, thus ending a decade of unprecedented growth.

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Still, NBER emphasized the terrorist strikes on New York and Washington and the subsequent uneasiness it has spread nationwide, accelerated the downturn in place.

"The attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession," the research group stated. "Before the attacks, it is possible that the decline in the economy would have been too mild to qualify as a recession."

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Still, it was a solid decade of growth until the contraction hit. From March 1991 to March 2001, the United States enjoyed its longest period of expansion. Moreover, the NBER's panel of six economists emphasized that a recession usually only lasts less than a year, which could mean that the U.S. economy could be out of the woods well before the end of the first half of 2002.

"Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades," NBER stated. The popular definition of a recession is two consecutive quarters of decline in real gross domestic product. NBER, however, defines it more broadly as a "significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade."

Many private sector economists have been optimistic that the current recession will be short-lived, but policymakers, investors and consumers must grapple with hitherto unknown uncertainties before they can safely see themselves out of the worst. The war on terrorism both abroad and at home continues, which has been a heavy blow to consumer and investor confidence. While the Bush administration insists that business should go on as usual and the most patriotic thing people could do is continue spending money, that's certainly more easily said than done, especially with the shaky job market.

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At the same time, the global economy is facing a hitherto unknown situation, with the recessions of Europe and Japan coinciding with that of the United States, thus dimming the prospects of one industrialized nation pulling out the others from the mire.

The official declaration of a recession is likely to speed up the debate on Capitol Hill on passing an economic stimulus package to keep the economy afloat post-Sept. 11. Treasury Secretary Paul O'Neill and White House Economic Adviser Lawrence Lindsey have made clear the Senate should focus on encouraging tax cuts benefiting corporations rather than boosting spending on individuals who have lost their sources of income as a result of the attacks.

The NBER's latest report could also push the Federal Reserve to ease monetary policy still further. The Fed had been slashing interest rates since the beginning of this year in an effort to keep the economy from sagging. The central bank has already cut the key federal funds target rate by 450 basis points since Jan. 3, bringing the rate down to 2.00 percent, its lowest level in 40 years. The policy-making Federal Open Market Committee, led by its Chairman, Alan Greenspan, will meet for the last time this year on Dec. 11.

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Established in 1920, the NBER is a Cambridge, Mass.-based non-profit group that boasts more than 600 leading U.S. economists as members. The committee that decides on declaring a recession consists of: Robert Hall, Martin Feldstein, Ben Bernanke, Jeffrey Frankel, Robert Gordon and Victor Zarnowitz.

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